The boss of SSE has called on the government to take bold action to support the renewable energy industry as rising inflation across the global supply chains threaten to slow the rollout of new clean energy projects.
The SSE chief executive, Alistair Phillips-Davies, told investors that the FTSE 100 utility would increase its spending by 14% to £20.5bn for its current budget in part because of a sharp rise in the costs of building windfarms and electricity grids.
He urged the government to take bold action to support offshore wind developers by offering higher subsidies for new offshore windfarms to reflect the higher costs of building them.
Phillips-Davies made the call for greater government support as officials prepare to unveil a new starting price for its next subsidy auction. The auction ceiling is expected to be well above the previous starting price which was too low to attract any new offshore windfarms.
The auction was described as “an energy security disaster” by the Labour party, which said that the UK could miss out on billions in investment and face higher energy bills if it derails the UK’s plan to triple Britain’s offshore wind power capacity by 2030.
The details of the next auction, which are expected to be set out on Thursday morning, follow weeks of crisis talks between the offshore wind industry and Whitehall officials over the sector’s rising costs.
Phillips-Davies told journalists it was “difficult to split out” the impact of rising costs on its multibillion-pound spending plan increase, but that the recent supply chain inflation had been “significant”.
He said that in addition to higher auction prices the government should allow more offshore windfarms to take part and award longer contracts of up to 20 years to help lower the winning bids, and the impact on home energy bills.
Rising costs have triggered concerns for the global offshore wind industry. Earlier this month, the Danish wind company Ørsted cancelled two big projects off the New Jersey coast in the US. Sweden’s Vattenfall has also scrapped plans for a huge offshore windfarm off the UK’s Norfolk coast because rising costs meant it was no longer profitable.
The government started its failed auction at a price of £44 a megawatt hour after the previous round of bidding led to record low contract prices of just over £37 a MWh. Officials are preparing to announce a new starting price that could be between £70 and £75 a MWh to reflect the industry’s higher costs, according to a report by Bloomberg.
SSE set out plans earlier this year to invest £40bn in clean energy over the next 10 years after almost doubling its full-year annual profits compared with the year before. It reported pre-tax profits of £565.2m for the first half of this year, up by 1% from the same months last year.
Phillips-Davies said the company’s earnings were likely to keep growing because of the “enduring broad political consensus behind the need to build the electricity infrastructure required for net zero”.
He added: “There remains strong underlying political consensus on the big drivers of energy security and decarbonisation – accelerating renewables, network investment and flexible power generation – and these are the growth engines powering SSE.”
SSE’s renewable energy portfolio earned adjusted profits of almost £87m for the first half of the year, up from £15m in the same months last year, even as milder weather led to lower output from its windfarms.
The company’s fleet of gas-fired power plants, which are used to cover peaks in demand for electricity, reported adjusted profits of just over £226m for the first six months of the year, down slightly from £248.2m in the first half of last year.
SSE earned adjusted operating profit of £215.6m from running its high-voltage transmission cables in the first half of the year, up 3% from the year before. Its local power grids business, which has regulated earnings, reported a 31% drop in adjusted profits to £120.1m for the first half after rising costs in its supply chain.